Overview

Brazil achieved independence from Portugal in 1822. It is a federal republic composed of 26 states and a federal district, with three tiers of government. Each state has its own government structure mirroring that at the federal level, and there are over 5,500 municipal councils. Voting is universal and compulsory for all literate citizens from 18-70, and optional for those aged 16-17 and over 70, or who are illiterate. Under Brazil's Constitution, the president and vice president are elected on the same ticket by popular vote for four-year terms. The National Congress consists of the Federal Senate with 81 members serving eight year terms, and the Chamber of Deputies consisting of 513 members elected by proportional representation to serve four-year terms.

Brazil has traditionally been an inward-looking country, both politically and economically. However, throughout the 1990s, Brazilian foreign policy reflected a more internationalist approach under former Presidents Collor and Cardoso. Priority was given to relations with other Latin American countries. Former President Cardoso worked to promote Brazil's image as an important international player and regional power, and commenced a campaign to win a permanent seat for Brazil on the United Nations Security Council.

Brazil's outward-looking focus in foreign policy accelerated under President Luiz Inacio Lula da Silva, who projected Brazil as a leader in Latin America and emphasised the importance of Mercosur (Mercosul in Portuguese). The President has championed the rights of developing countries, and worked consistently to strengthen Brazil's ties with other major developing powers including China, India and South Africa. Brazil is also a driving force in the recently created Union of South American Nations (known as UNASUR).

As a leader in the developing world, Brazil has become a regular participant in global forums such as the World Economic Forum, the G8 and G20. Brazil hosted the G20 Finance Minister's Meeting in 2008.

Brazil has placed increased emphasis on reciprocity in trade negotiations. It has asserted that progress in the World Trade Organization and Doha Round negotiations will be contingent on concessions being offered by developed countries on agricultural subsidies.

President Lula's central policy focus was to improve living conditions for Brazil's poor while continuing the economic discipline of his predecessors. After taking office in 2003, he launched the Bolsa Família (Family Fund Program) which consolidated five income transfer programs to poor families. This program, which is managed by the Brazilian Ministry of Social Development, provides a stipend to parents to feed and clothe their children, provided they keep them at school and to take them for medical check-ups. The fund now reaches the poorest quarter of Brazil's population. According to Government estimates, 35 million Brazilians were lifted out of poverty between 2003 and 2010.

In the Presidential elections held in 2010, the Worker's Party candidate, Dilma Rousseff, Chief of Staff to former President Lula, (54 pct) beat Jose Serra of the Brazilian Social Democratic Party (PSDB) (46 pct) in the second round. Ms Rousseff was inaugurated as President on 1 January 2011 and her administration is expected to maintain a similar focus to that of former President Lula. President Rousseff was imprisoned and tortured by the military government in the 1970's and is likely to stress human rights, including through Brazilian foreign policy and the creation of a Truth Commission to investigate the activities of the military regime

Economic outlook

Possessing large and well-developed agricultural, mining, manufacturing and service sectors, Brazil's economy (ranked by the International Monetary Fund in 2009 as the world's eighth largest economy with a GDP of $US1,481billion) outweighs that of all other South American countries and is expanding its presence in world markets. (Australia was the world's 13th largest economy in 2009 at $US920billion.)

The Brazilian economy recovered from the economic setbacks experienced earlier this decade, including an internal energy crisis in 2001, increased international investor risk aversion following the 2001 terrorist attacks in the United States, and the flow-on effects of the economic crises in some South American countries in 2001-02. IMF support since August 2002, combined with prudent economic management by the Lula Government, has helped to restore confidence in the Brazilian economy. In April 2008, the rating agency Standard and Poors increased Brazil's sovereign rating to investment grade (BBB-), reflecting Brazil's status as a net creditor nation.

Brazil's relatively low exposure to international trade has limited the impact of the global economic downturn that emerged in late 2008. Global financial instability resulted in a contraction of GDP in 2009 of 0.2 per cent (down from 6.8 per cent growth in 2008). However, through resilient domestic demand and government stimulus measures Brazil's economy made a spectacular recovery in 2010, experiencing its fastest rate of economic growth in almost two decades. In the first quarter of 2010, Brazil recorded GDP growth of 9 per cent and is forecast to continue growing throughout the year at around 7 per cent. Yet while Brazil's rapid recovery from the global financial crisis has been a success story, growing inflationary pressures and infrastructure shortages could derail the country's long-term recovery. Containing the rate of inflation and easing infrastructure bottlenecks will be two of the greatest policy challenges facing the Government over the coming years.

Brazil continues to face considerable difficulties in implementing economic reforms, particularly in tax and business regulation. The President's focus on fiscal discipline has also deprived the Government of some of its traditional support base. Judicial reform, improving education and fighting crime and corruption remain key challenges for the Government. In the longer term, Brazil will also need to invest heavily in infrastructure to sustain growth. Investments in roads (privatisation/modernisation of roads has been initiated), railways (railway privatisation has been resumed), ports and the energy sector are required.

Externally, the Southern Cone Common Market (known in Portuguese as Mercosul) is the most important economic grouping for Brazil. Mercosur was formed in 1991 by Brazil, Argentina, Paraguay and Uruguay. Under the Mercosur treaty, tariffs between members are lowered gradually on most products and common external tariffs are applied to non-members. Mercosur represents a market of almost 270 million people with a combined GDP in 2009 of more than US$1.8 trillion.

Major Australian investment activity

Mining and mining services

BHP- Billiton owns 50 per cent of the Samarco iron ore mine, and also conducts bauxite, oil and gas exploration in Brazil.

Troy Resources has 70 per cent ownership of the Sertão gold mine.

Mincom & Maptek provide information technology services — technical support for the mining sector.

GRD Minproc was awarded a $1.6 billion contract for engineering, procurement and construction management in the mining sector. This has prompted them to open corporate and project offices in Belo Horizonte in the state of Minas Gerais.

Orica has an industrial explosives plant in Brazil.

Mundo Minerals is operating its Engenho gold mine in Minas Gerais and is expected to deliver 30,000 ounces of gold per year from the second quarter of 2008.

In September 2007 Coffey International Limited acquired Brazilian mining sector consulting company Geoexplore Consultoria e Serviços Ltda.

Mirabela Nickel has explored and is now developing nickel and other base metal targets in Bahia, Sergipe and Tocatins, including the Santa Rita nickel sulphide project which is one of the world's largest.

A number of other Australian mining juniors have operations of various sizes and stages of development.

Ausenco has a project office in Belo Horizonte to provide engineering and project management solutions to the resources and energy sector.

Agribusiness

In May 2007, Nufarm Limited took 100 per cent ownership of Agripec (Brazil's largest locally owned crop protection company) after acquiring a 49.9 per cent stake in the company in 2004. Nufarm has stated its Agripec investment constitutes a key element of the company's expansion into Latin America.

Agrichem has a fertiliser production and distribution facility in Riberão Preto, Sao Paulo.

Interest exists from a number of Australian companies and institutions for investment in agricultural production including production of feedstock for biofuels generation.

Renewable energy

Pacific Hydro has 2 wind farms operational in the state of Paraiba in northeast Brazil with investments to date of approx $A200 million, generating renewable energy that is sold back to the grid. The company plans additional projects in the region.

Document management

Recall (Brambles) provides storage of documents in paper or electronic format.

Insurance services

QBE Brazil provides life and accident insurance.

Banking

Macquarie Group maintains a representative office in Sao Paulo to serve the agricultural commodities sectors in Latin America

Other sectors

Chep (Brambles) has service centres throughout Brazil for its pallet and equipment handling systemsAmcor PET Packaging has manufacturing and sales facilities in Sao Paulo and provides a range of beverage containers to industry.

Changes in trade and investment conditions

Changes in trade conditions

Brazil's simple average Most Favoured Nation (MFN) applied tariff was 11.5 per cent in 2008, up from 10.4 per cent in 2004. Brazil reduced its highest duty rates from 55 per cent in 2004 to 35 per cent in 2008. Brazil has introduced a number of export finance, insurance and guarantee measures aimed at assisting producers and exporters to access credit. Brazil claims to have simplified its import licensing regime and expedited customs clearance procedures.

Changes in investment conditions

Brazil continues to liberalise its services sector, including telecommunications and financial services. The government has a reform agenda for the taxation system, social security, bankruptcy laws and other improvements in financial markets to reduce the cost of finance.

Trade relations and statistics

Brazil, Argentina, Paraguay and Uruguay have formed the Southern Cone Common Market (known as 'Mercosul' in Portuguese). Chile and Bolivia have also special trade agreements with the member countries. Under the treaty agreement, tariffs are being lowered gradually to reach zero on practically all products.

Mercosul represents a market of almost 200 million people with a combined GDP of more than US$1 trillion. Brazil accounts for 67 per cent of all goods and services produced within Mercosul.

Brazil also belongs to the World Trade Organisation and is holding conversations to integrate the Americas Free Trade Zone.